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Optimum Currency Area Indices - How Close is the Czech Republic to the Eurozone?

Lubos Komarek (), Zdenek Cech and Roman Horvath

Working Papers from Czech National Bank

Abstract: In this paper we provide a survey of the optimum currency area theory, estimate the degree of the explanatory power of the optimum currency area criteria, and also calculate the optimum currency area index in the case of the Czech Republic. The results indicate that the traditional optimum currency area criteria to certain extent explain exchange rate variability. Our results may be interpreted as an attempt to assess the benefit-cost ratio of implementing a common currency for a pair of countries. Our results also suggest that from the point of view of the optimum currency area theory the costs of adopting the euro for the Czech Republic may be relatively low, at least in comparison with other EMU member countries. We conclude that if the European Monetary Union is sustainable, the accession of the Czech Republic should not change it.

Keywords: Convergence; EU/eurozone; exchange rate; optimum currency area theory; transition. (search for similar items in EconPapers)
JEL-codes: E58 E52 F42 F33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn, nep-mac, nep-mon and nep-tra
Date: 2003-12
References: View references in EconPapers View complete reference list from CitEc
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Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2003/10

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